Lifetime gift or Equitable Accounting

Trusts Discussion
1

Deceased (A) inherited 50% in a rental property from late spouse, with the other 50% going to son (B) - owned as Joint Tenants. The property rental continued and the rental income was shared 50/50. A becomes sick and B and his wife decide to move into the rental property (close to the family home) to provide care. No rent is paid by B to A. The property needs refurbishment and A pays 90% of the costs. A then dies.

The family executors would like to persuade HMRC that the disparity of contributions should be ignored as if B had not moved, A would have gone to a home and paid substantial fees. I don’t see HMRC accepting such a netting off.

Assuming this is not going to work, should the excess contribution by A to the refurbishment be treated as a gift to B as co-owner or do the rules of Equitable Accounting (see Re Pavlou) apply, meaning that there is a debt owed by B to A at death of the lower of the overpaid refurbishment costs or the proportionate increase in value in the joint property due to the refurbishment?

Thanks.

2

There is a detailed treatise entitled ”Balancing the books” at gatehouselaw.co.uk

Jack Harper

3

Thanks Jack - I did read that earlier but was looking for advice on whether HMRC might be able to take the points raised there which refer specifically to trusts of land disputes.

4

HMRC have to follow the law. IHTM15044 indicates that they accept that. The problem is that where equitable remedies are concerned, and particularly when their discretionary nature is in point, they force the parties to litigate and sit on the fence meanwhile. Their view is likely to be unpredictable where the issues involved are not on all fours with decided cases.

Jack Harper

5

Thanks again Jack - the reference to the manual is helpful.